Fertility and old-age labor supply in aging China

Abstract

This paper studies the fertility and old-age labor supply decisions of Chinese households along with the relaxation of fertility control and a rise in life expectancy. We first build an overlapping-generations model, where agents make endogenous fertility and old-age labor supply decisions in the presence of fertility constraint. In our model, children serve as an alternative saving technology since they provide intra-family transfer for their old-age parents. Our analytical results suggest that the impact of rising life expectancy on fertility depends on whether children are more like consumption goods or saving vehicles. Relaxing fertility control would induce more leisure in the old age, while a rise in life expectancy would lead to more old-age labor supply. We then calibrate the model to Chinese economy and find that a rise in life expectancy would discourage fertility as intra-family transfer becomes less important. In addition, the implementation of two-children policy rather than full relaxation of fertility control, a rise in child-rearing cost, and an expansion of social security would also reduce fertility, partly offsetting the effects of relaxing one-child policy.